The market regulator found that Hyderabad-based Viswas Real Estates had mobilised funds from public by promising them plots of land in its real estate ventures without necessary approvals from SEBI
Clamping down on an unauthorised real estate investment scheme, market regulator Securities and Exchange Board of India (SEBI) has restricted Viswas Real Estates and Infrastructures India Ltd and its two directors from collecting money from investors.
SEBI said it found that the Hyderabad-based company had mobilised funds from public by promising them plots of land in its real estate ventures without necessary approvals from SEBI.
It was alleged that Viswas Real Estates had collected an amount of Rs30 crore by deceiving public through its investment schemes.
SEBI noted that Viswas Real Estates "has not obtained any certificate of registration under the regulations for its fund mobilising activity from the public" and it was the regulator's mandate to ensure that no investors are defrauded by the company.
Consequently, SEBI has asked the firm and its directors -- Vaka Saradhi and Eshararao Gundala -- "not to collect any fresh money from investors under its existing schemes" and "not to launch any new schemes or plans or float any new companies to raise fresh money".
The company and its directors also have to "immediately submit the full inventory of the assets including land obtained through money raised by Viswas Real Estates and Infrastructures India" to SEBI.
Further, the company cannot dispose of any of the properties or alienate the assets including land obtained directly or indirectly through the money raised and cannot divert any of these funds.
SEBI has also asked the company and its directors to furnish all the information/details sought by the market regulator within 15 days.
The information is with respect to details of amount mobilised and refunded till date, scheme wise list of investors and their contact numbers and addresses, audited accounts for the last three years, among others.
The market regulator had received a complaint dated 6 March 2014 against Viswas Real Estates alleging that the firm had collected an amount of Rs30 crore from the public under its 'Viswas Own Your Lumpsum Property Advance Scheme Agreement Bond Monthly Plans'.
SEBI found that Shubham Karoti Foods was collecting money from common people in Silvassa through certain food schemes without due authorisation
Market regulator Securities and Exchange Board of India (SEBI) has barred Pune-based Shubham Karoti Foods Pvt Ltd and its two directors from mobilising money from investors and launching any new scheme.
The capital market regulator found that the company was collecting funds from common people in Silvassa through certain food schemes without due authorisation.
The Pune-based company is stated to be engaged in the business of food products including tea, groundnut, soya oil, mineral water, among others in Maharashtra.
"Protecting the interests of investors is the first and foremost mandate for SEBI and therefore steps have to be taken in the instant matter to ensure only legitimate investment activities are carried on by Shubham Karoti Foods and no investors are defrauded," the SEBI said in an order.
Accordingly, SEBI has directed the company and its directors -- Somit Kishanchandra Saxena and Sudhir Nathuram Pawar "not to collect any more money from investors including under the existing schemes" and "not to launch any new schemes".
Besides, the entities have been asked not to dispose of any of the properties or alienate any of the assets of the schemes and not to divert any funds raised from public.
The company has to furnish all information regarding the schemes with details of the investors and also details of insurance policies and compensation given under the policies as part of the schemes, to SEBI.
The directions shall take effect immediately and shall be in force until further orders, SEBI said.
The regulator said that the company "is prima facie engaged in mobilising funds from the public, by floating or sponsoring or launching 'collective investment scheme...without obtaining a certificate of registration from SEBI".
SEBI had begun a probe in the matter after receiving a reference on 20 November 2013 from the Reserve Bank of India (RBI) about the company.
The common denominator in all bank frauds is the lack of internal control, lack of integrity and the epidemic of misconduct among officials
Experience is the best educator, but it seems that some people refuse to learn, the latest culprit in this category being a multinational bank. It is the latest addition to the endless list of fraudsters. This bank’s fraud has a striking similarity to the Allied Irish Banks (AIB) and Barings Bank cases, in both instances one man incurred huge losses without any other person within the organisation getting wind of it. Barings Bank collapsed as a result and AIB barely survived the debacle.
The similarities are in the manner the funds were invested. Rusnak of AIB was a currency trader who gambled on the world's financial markets and incurred huge losses.
A combination of incompetence, ignorance and ineptitude, coupled with little or no supervision and internal control, enabled him to do what he did. It was after about a year had passed that the trader's actions came to bite the bank and it lost about 10% of its equity capital, but somehow survived the ordeal.
Barings was not as lucky, Nick Leeson was trader with Baring and in 1995 went one step further than Rusnak and ended up bringing down Barings, the UK's oldest merchant bank. Leeson was dealing in dodgy derivatives rather than currencies, this case had a striking resemblance to the AIB debacle. Shivraj Puri, the alleged mastermind behind a fraud worth about Rs400 crore, more or less operated as Leeson did. Like Leeson, he also invested most of the funds in the derivative instrument called “Nifty Options”.
Sumitomo Bank's Yazoo Harmonica, Daiwa Bank's bond trader Toshihide Iguchi, Princeton Economics International’s Martin Armstrong and the list is endless, but the common denominator in all frauds is the lack of internal control within banks, lack of integrity and an epidemic of misconduct among officials.
It is estimated that a typical organisation in the US loses 6% of its annual revenue to fraud and that employees are responsible for more than 75% of the fraudulent transactions. Shivraj Puri's fraudulent operations, which became public in 2012, brought to light a bank with a "lack of integrity, no compliance, discipline and transparency, no due diligence and no strategy".
Most, if not all of the factors that contribute to fraud, can be neutralised with strong internal checks and controls. The essence of 'Internal Control' therefore lies in the separation of the three functions of 'Authorisation'- the initiation of the transaction, 'Custody'- the handling of assets involved in the transaction' and 'Recording'- the creation of documentary evidence of the transactions and it's entry in the accounting records.
This will involve the division of responsibility in the various procedures, whereby, transactions are Authorised, Performed, Recorded and on completion are Verified and Reconciled independently.
Know your customer (KYC), an essential precaution, must be coupled with know your employees (KYE):
Thorough check on employees' credentials, proper screening of candidates to prevent hiring fraudsters
Rotation of personnel, surprise job rotation
Compulsory annual leave
Assignment of responsibility
Division of work /Separation of Functional duties
Separation of accountability from custodianship
Adequate records and equipment
Physical protection of assets
Strong Internal and external auditing
These imply that the financial and accounting controls should be such as to facilitate efficient working and at the same time obviate any chance of Fraud or error. Here the practical division of duties should be such as to ensure that the internal check system is operating at all stages. Internal Check forms a valuable part of the Internal Control System. It arises from the "Separation of Function" in such a manner that no single task is executed from it's beginning to its final destination by any one person and the work of each person is an independent check in the course of another person's duties. “Internal Check" is a form of "Verification" that aims at minimizing errors and frauds. It is a line function.
The failures in several recent cases, demonstrate that inadequate internal controls can lead to significant losses for banks. The types of control breakdowns typically seen in these cases can be grouped into the following categories:
Lack of management supervision, accountability and failure to develop a strong control culture within the bank.
Inadequate recognition and assessment of the risk of certain banking activities, whether on or off balance sheet
Key control structures and activities, such as segregation of duties, approvals
verification, reconciliation and review of operating performance.
Inadequate communication of information between levels of management within the bank, especially in the upward communication of problems.
Inadequate or ineffective audit programs and monitoring activities.
It is a fact that an organization implementing and maintaining a robust internal control system would, in most cases, prevent any fraud. If banking organisations do not go down that road, it is inevitable that they will be more prone to fraud. A good internal control system will keep any damage down to a minimum. Organisations should try to develop a culture that constantly accounts for ethical questions in its functions.
(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)